You are told to value a private firm with the following information: - EBIT: $10.5m - Revenue: $50m - The owners never charged themselves a salary, it would have been amounted to $1m based on comparable firms. - Corporate tax rate: 36% - Working capital: 10% of revenues - The firm has no cash reserve - Net capital expenditure: $3.5m - Earnings, revenues, and net capital expenditures are expected to grow 30% a year for 5 years, and 6% thereafter. - Similar firms in the same sector have an average beta of 1.3567, and an average D/E of 13.65%. - The firm is expected to keep the current market value of D/E (13.65%) forever. - The average correlation with the market is 0.5. - Cost of debt: 8.755% - Risk-free rate: 6% - Market risk premium: 5.5% - It is assumed that the firm will have a beta of 1.0 after the first 5 years.

a. Estimate the value of the firm for private to private transaction.

b. Estimate the value of the firm’s equity for private to private transaction.

c. Would you answer be different if you were valuing the firm for IPO? Briefly explain. What cost of equity and cost of capital would you use?